From 1947 to 2001, the nominal US gross domestic product (GDP) grew at an annual, rate of 3.5% a year.

However, from 2002 to today, that average has fallen to 1.9%. This loss of 1.6% real GDP growth points annually represents a 45% reduction of the US growth ratefrom its historic, pre-2002 norm.

Just why did the US growth rate fall so dramatically?

Many left-of-center economists – and the Obama Administration – have described this era of slower growth as the “new normal.” They blame this plunge at least in part on demographic shifts such as a declining labor force participation rate and the movement of “baby boomers” into retirement.

This view of America’s economic malaise is incomplete – and unnecessarily defeatist.

It ignores the significant roles higher taxes and increased regulation have played in inhibiting US economic growthsince the turn of the 21st century as well as our ability to fix the problems.

This new normal argument also ignores the self-inflicted negative impacts from poorly negotiated trade deals and the failure to enforce them.

One need look no further than the lengthy list of transgressions detailed in the National Trade Estimate for examples. These bad deals include most notably NAFTA, China’s entry into the World Trade 4 Organization in 2001– a critical catalyst for America’s slow growth plunge – and most recently Hillary Clinton’s debilitating 2012 South Korea trade deal.

China’s 2001 entry into the WTO

China’s 2001 entry into the WTO, negotiated by President Bill Clinton:

2.China’s accession to the WTO also rapidly accelerated the offshoring of America’s factories and a concomitant decline in US domestic business investment as a percentage of our economy.

3.As David Dollar of Brookings notes, US direct investment flows to China were “fairly stable at about $1.6 billion per year in the period 1999-2003” but “jumped in the period 2004-2008 to an annual average of $6.4 billion.”

Justin Pierce of the Federal Reserve Board of Governors staff and Yale School of Management’s Peter Schott attribute most of the decline in US manufacturing jobs from 2001 to 2007 to the China deal. David Autor of MIT, David Dorn of the University of Zurich, and Gordon Hanson of UC-San Diego have described a “China trade shock” that has raised the unemployment rate, depressed wages and the labor participation rate, and reduced the lifetime income of workers in American manufacturing most “exposed” to the shock.

Most recently, the 2012 South Korea trade deal was negotiated by Secretary of State Hillary Clinton – she called it “cutting edge.” It was sold to the American public by President Obama with the promise it would create 70,000 jobs. Instead, it has led to the loss of 95,000 jobs and roughly doubled America’s trade deficit with South Korea.

Corporate America does not oppose these deals. They both allow and encourage corporations to put their factories anywhere.

However, Mr. and Ms. America are left back home without high-paying jobs.

·There is nothing inevitable about poorly negotiated trade deals, over-regulation, and an excessive tax burden – this is a politician-made malaise.

·Therefore, nothing about the “new normal” is permanent.

Donald Trump’s tax, trade, regulatory, and energy policy reforms deal with the root causes of this problem. Trump understands that our economic problems are long run and structural in nature and can only be addressed by fundamental structural reforms.

III. How Nations Grow and Prosper

The growth in any nation’s gross domestic product (GDP) – and therefore its ability to create jobs and generate additional income and tax revenues – is driven by four factors:

1.consumption growth,

2.the growth in government spending,

3.investment growth,

4.and net exports.

When net exports are negative, that is, when a country runs a trade deficit by importing more than it exports, this subtracts from growth.

In 2015, the US trade deficit in goods was a little under $800 billion while the US ran a surplus of about $300 billion in services. This left an overall deficit of around $500 billion.

These trade-related structural problems of the US economy have translated into slower growth, fewer jobs, and a rising public debt.

·For example, each additional point of real GDP growth translates into roughly 1.2 million jobs.

·When the US economy grows at a rate of only 1.9% annually instead of its historic norm of 3.5%, we create almost 2 million fewer jobs a year.

IV. Regulatory Effects on Growth

Excessive regulation drives ups costs, drives down both R&D and hiring, and contributes to the “push” offshore of domestic business investment.

The Heritage Foundation and National Association of Manufacturers (NAM) have estimated regulatory costs to be in the range of $2 trillion annually – about 10% of our GDP.NAM finds that “small manufacturers face more than three times the burden of the average US business.”According to the Competitive Enterprise Institute, this “hidden tax” of regulation amounts to “nearly $15,000 per US household” annually.

Hillary Clinton has promised to continue Obama’s regulatoryagenda, particularly in the area of energy.

Neither of these career politicians, each lacking any business experience, seem to understand the real costs this increasing regulatory burden imposes on the US economy and how this regulatory burden is restricting economic growth.

We assume the Trump plan seeks to reduce the current regulatory burden by a minimum of 10% or $200 billion annually.It proposes a temporary pause on new regulations not compelled by Congress or public safety and a review of previous regulations to see which need to be scrapped.Each Federal agency will prepare a list of all of the regulations they impose on American business, and the least critical regulations to health and safety will receive priority consideration for repeal.

Note that the Trump regulatory reform plan will disproportionately – and quite intentionally – help the manufacturing sector.

This is the economy’s most powerful sector for driving both economic growth and income gains.

These income gains will, in turn, disproportionately benefit the nation’s blue collar workforce. According to the National Association of Manufacturers (NAM),

·“for every one worker in manufacturing, there are another four employees hired elsewhere.”

·In addition, “for every $1.00 spent in manufacturing, another $1.81 is added to the economy” and this is “the highest multiplier effect of any economic sector.” (In the calculations below for trade effects, we will conservatively assume a discounted multiplier of 1.0 based on this 1.81 NAM multiplier.)

This high multiplier effect is precisely why the Trump Trade Doctrine and overall economic plan seek to strengthen the US manufacturing base– and regulatory reform is a key structural reform.

Right now, as Mark and Nicole Crain calculate: “The cost of federal regulations fall disproportionately on manufacturers…. Manufacturers pay $19,564 per employee on average to comply with federal regulations, or nearly double the $9,991 per employee costs borne by all firms as a whole.”According to the Manufacturing Institute:More than any other sector, manufacturers bear the highest share of the cost of regulatory compliance. … Manufacturers spend an estimated $192 billion annually to abide by economic, environmental and workplace safety regulations and ensure tax compliance—equivalent to an 11 percent “regulatory compliance tax.”

VI. The Role of Offshoring In The GDP Growth Process

Just as there are those who argue that a “new normal” means the US economy is now permanently stuck in a lower gear, there are those, including Hillary Clinton, who insist that US manufacturing is destined to move offshore.

Their “solution” is to convert the US to a “service sector” economy – yet service sector jobs tend to be of lower pay.

As previously noted, manufacturing jobs are a critical part of the American economy.They provide some of the highest wages for our labor force, especially for blue collar workers.

When auto companies like GM or Ford build new factories in China or Mexico rather than in Michigan or Ohio, additional jobs are also lost throughout the economy.As the National Association of Manufacturers notes, for every one manufacturing job in the US auto industry, many more jobs are created downstream in industries ranging from aluminum, plastics, rubber, and steel to glass, rubber, textiles, and computer chips.”

Since the era of globalization, manufacturing as a percent of the labor force has steadily fallen from a peak of 22% in 1977 to about 8% today.

To those who would blame automation for the decline of manufacturing,one need only look at two of the most technologically advanced economies in the world, those of Germany and Japan, each of which is a worldwide leader in robotics.Despite declines in recent years, Germany still maintains almost 20% of its workforce in manufacturing while Japan has almost 17%.

To be clear, when we are talking about manufacturing, we are not just talking about cheap tee shirts and plastic toys.We are talking about aerospace, biomedical equipment, chemicals, computer chips, electronics, engines, motor vehicles, pharmaceuticals, railroad rolling stock, robotics, 3-D printing, resins, ship building, and more.The US will become more competitive in each of these sectors if our businesses are not being pushed offshore by high taxes and a heavy regulatory burden or pulled offshore by unfair trade practice like the lure of undervalued currencies and the availability of illegal export subsidies.

A.Reducing the US tax will help close the current offshoring gap.

B.Loweringthe Federal Corporate Income Tax:The express goal of the Trump tax reforms is to realign corporate incentives and thereby encourage more onshoring and reshoring of investment while discouraging offshoring.

C.Ending the Unequal Value-Added Taxe Treatment Under WTO Rules:Under current rules, the WTO allows America’s trading partners to effectively create backdoor tariffs to block American exports and backdoor subsidies to penetrate US markets. Here’s how this exploitation works: VAT rates are typically between 15% and 25%.For example, the VAT rate is 25% in Denmark, 19% in Germany, 17% in China and 16% in Mexico.Under WTO rules, any foreign company that manufactures domestically and exports goods to America (or elsewhere) receives a rebate on the VAT it has paid.This turns the VAT into an implicit export subsidy.At the same time, the VAT is imposed on all goods that are imported and consumed domestically so that a product exported by the US to a VAT country is subject to the VAT.This turns the VAT into an implicit tariff on US exporters over and above the US corporate income taxes they must pays.

Thus, under the WTO system, American corporations suffer a “triple whammy”:

1.foreign exports into the US market get VAT relief,

2.US exports into foreign markets must pay the VAT,

3.and US exporters get no relief on any US income taxes paid.

The practical effect of the WTO’s unequal treatment of America’s income tax system is to give our major trading partners a 15% to 25% unfair tax advantage in international transactions.

Like many countries, Mexico has shrewdly exploited the VAT backdoor tariff to further its competitive advantage. While Mexico’s VAT existed prior to NAFTA, the Mexican government increased its VAT by 50%, from 10% to 15%, shortly after the NAFTA agreement was signed in 1993 and in the same year the WTO commenced.

With the Mexican VAT now raised again to 16%, this discourages US exports to Mexico, encourages US manufacturers to offshore to Mexico, and has helped to increase our annual trade deficit in goods with Mexico from nearly zero in 1993 to about $60 billion.

This is yet another case in which Corporate America wins, but Mr. and Ms. America lose.

VII. Corporate Strategy and the “Push” and “Pull” of Tax, Regulatory, and Trade

Consider, for example, the rules of the WTO.They provide no specific dispute resolution mechanisms or relief against :

A.The use of either sweatshop labor or

B.Lax environmental regulations.

C.Nor do the rules of the WTO prevent countries from undervaluing their currency to gain competitive advantage.

The dispute resolution mechanisms that do exist within the WTO make it a lengthy and uncertain process to obtain relief against even the most egregious behavior.

Examples include the dumping of steel into global markets by countries ranging from China, India, and Italy to Korea and Taiwan and the use of non-tariff barriers to offset lower tariffs required under WTO rules.

As another problem, it takes a long time to adjudicate trade cases. In the interim, American companies go bankrupt, cheaters take over the market, and the court ruling becomes moot. This happened a few years ago to Bethlehem and 30 other steel companies that went bankrupt waiting for relief.

Finally, there is this very real “gaming of the system” problem: When the US files legitimate cases based on demonstrable violations, our trading partners often retaliate with bogus countervailing trade claims designed to clog up and slow down the dispute resolution process while obfuscating the underlying issues.